As Thailand’s 3rd Covid wave hits the wealthy, spare a thought for the economy

Thailand’s economic recovery could see further delay as the country faces the 3rd wave of Covid-19 outbreak, which could further dent the already fragile consumer and industry confidence.

The country was until recently considered as having done an outstanding job in handing its Covid-19 cases. But it has recently been struck by another wave, which started at the wet markets of Bangkae nearly 3 weeks ago. And the wave has recently gained scope with cases spreading among the high-society bars and pubs around Thonglor and Ekkamai areas of the capital.

The latest outbreak has been one of the most severe, with more than 604 cases reported from the Thonglor cluster. The number of cases Friday rose to 559, with more than 400 coming from testing facilities.

To make matters worse the Thonglor cluster is spreading among the middle and high class society of Bangkok, a segment that has seen little impact from the 15 months of the Covid-19 outbreak to date.

Globally the rich have hardly suffered from the outbreak. Per Forbes’ latest Billionaires’ List a total of 660 new billionaires were added to the list around the world, making the total a staggering 2,755. The number may seem large, but between them these individuals control USD13.1 trillion, nearly the amount of the entire Chinese economy in 2020.

Construction workers wearing face masks and keeping safe distance amid fears of the spread of the COVID-19 coronavirus walk on a street in Bangkok on April 13, 2020. – Thai government banned the celebration of the Buddhist New Year, locally known as Songkran that starts on April 13 due to coronavirus pandemic. (Photo by Mladen ANTONOV / AFP)

Spending power

The group of people who are being impacted at the moment is the sector that has the highest spending power in Thailand. They are the ones who go out dining, shopping and buying the expensive wines, real estate and cars.

Therefore the 3rd wave is likely to have a major impact on the sentiment of these high-spending people, which would then in turn have an impact on the possible economic recovery of the country.

This drop in confidence was reiterated by the University of Thai Chamber of Commerce (UTCC).  It expects consumer spending to plunge by up to 50 billion baht per month as a result of the new wave of the Covid-19 outbreak, and to see a further drop in the Consumer Confidence Index over the next 3 months.

UTCC president Thanavath Phonvichai said that he is concerned that the Consumer Confidence Index will not improve, with people’s spending expected to dip by 5-10 per cent, or around 1-2 billion baht a day over the coming months, adding that if the government takes 1-2 months to put the outbreak under control, spending will further decrease by 60-100 billion baht.

He said key factors to help sustain the Consumer Confidence Index is to control the caseload to no more than 500 cases per day; the acceleration of the vaccination programme; and more measures to reduce the cost of living at the end of April.

UTCC predicted that gross domestic product (GDP)  growth may decrease by 0.3-0.5 per cent this year.

Passengers walk through the terminal in a near-empty Suvarnabhumi International Airport in Bangkok on June 3, 2020, as domestic Thai travel starts to pick up following restrictions to halt the spread of the COVID-19 coronavirus. (Photo by Lillian SUWANRUMPHA / AFP)

Saving grace

With spending power falling the saving grace would most likely be exports and the tourism sector.

Exports, which account for nearly 60 per cent of GDP, are likely to be the key driver during this pandemic, helped by the fact that the Thai baht has been weaking.

The weakening Thai baht from below 30 to the US dollar just about a few months ago to the current level of 31.40 to the greenback is likely to help the export sector, which has been witnessing a slow recovery.

The data for the month of February that were released by the Bank of Thailand (BoT) on March 31st showed that headline exports dipped for the month -0.2 per cent year-on-year (YoY), which real sector exports continued to rebound in line with a strong recovery in global growth. 

Excluding gold and oil, exports in February rose by 6.2 per cent YoY especially in the electronics and petroleum products sectors. The tailwinds from the boom in electronics exports, as well as a semiconductor shortage, should continue to support the Thailand’s manufacturers in the industry. A recovery in oil prices resulted in a strong growth in the commodity and petroleum-related products.

Furthermore, imports for the month surged by 23.9 per cent YoY from a 6.1 per cent YoY growth in January, mainly from machinery and raw materials, suggesting that export recovery and manufacturing rebound is likely to be sustained through the second quarter.

Pipat Luengnaruemitchai, an economist at Kiatnakin Phatra said that overall economic indicators pointed to a continued recovery of economic activity in February as external demand improved and the local Covid-19 outbreak was brought under control.

“Thailand is facing the risk of another wave of Covid-19 outbreak. This would pose a headwind to economic recovery. The government has discussed plans to reopen its border and implement travel arrangements. However, the renewed outbreak and slow vaccination program would pose a risk to the return of foreign tourists. We continue to expect subpar growth and slow recovery this year, with risks tilted to the downside. We do not expect significant fiscal stimulus programs, as the government is apparently concerned about the level of debt,” he said.

Unemployed people lie down on the side of a major street in Bangkok on September 15, 2020. – Developing Asia — stretching from the Cook Islands in the Pacific to Kazakhstan in Central Asia — is expected to contract in 2020 for the first time in nearly six decades, throwing tens of millions of people into poverty. (Photo by Mladen ANTONOV / AFP)

Watering-hole outbreak

Maybank Kim Eng in a report to clients this morning came out to say that it too expects the economy to go into a tailspin and could prompt a downgrading of the GDP growth projections.

“Thailand is seeing a 3rd wave of infection and it started in a fresh market in Bangkok but the recent cases came from the watering holes of high-society members and also some government officials,” Maybank Kim Eng said in its early-morning note to clients.

“As a result some provinces are imposing quarantine measures and this cancels many trips planned for the Songkran holiday next week. As flagged earlier, like the 2nd wave, a 3rd wave will have a negative economic impact and likely to prompt GDP downgrade. SET has reacted to the evolving situation negatively.”

The broker said that in terms of its assessment of impact on the Stock Exchange of Thailand (SET) it expects to see downgrading of sectors such as retailers, hotels and food.

Sectors to see downgrades are the retailers (especially high-end retailers that are leveraged to domestic tourism), hotels and food services. The broker says that it is flagging deeper losses among hoteliers. As for retailers and big food and beverage, take at look at the same-store sales growth (SSSG) table below. It is reported that many HoReCa (hotel/restaurants/cafés) have been preparing inventory to accommodate demand during the Songkran holidays. This would be a potential drag on profits.

SSSG profile of selected operators

International tourists, predominantly Russian nationals, enjoy the beach despite concerns over the spread of the COVID-19 coronavirus and restrictions for travellers at a resort in Phuket on March 20, 2020. (Photo by Mladen ANTONOV / AFP)

Tourism impact

The tourism sector, which was set to open its doors to visitors via a shortened, one-week quarantine programme by July, is likely to be impacted as opening to foreign tourists is likely to see further delays as the country remains largely unvaccinated.

Kiatnakin Phatra’s Pipat says that the new outbreak underscores the risk and uncertainty of the recovery as the vaccine rollout has been slow. He added that the government has relied almost exclusively on AstraZeneca and Sinovac for its vaccine plan and expects to inoculate 50-60 per cent of the population (at least 65 million doses) by the year-end. But so far, less than 300,000 people (0.4 per cent of population) have received the vaccines. A large vaccination program may not start until May.

“The outbreak and slow vaccination would certainly affect travel arrangement plans and the economic recovery as well as leave the country vulnerable to new strains of the virus,” he says.

Although Thailand’s numbers have been low when compared to other countries, Pipat argues that the problem is that the risk tolerance among Thais for the spread of the virus has been very low and has impacted sentiments and overall spending.

He says that strict restriction measures would affect domestic tourism, retail, discretionary consumption, hotels and restaurants, and the commercial real estate and transport sectors, which have suffered from the total loss of foreign tourism and were just recovering only recently.

In January, the private consumption index fell 4 per cent month on month (MoM) owing to the restriction, before recovering 3 per cent in February as the restrictions eased. The impact on the economy would depend on the policy response and the duration of the outbreak.

Empty coffers

The government’s spending powers are limited and whatever is there in the pipeline is unlikely to be enough to sustain any economic fallout.

The shortfall of tax revenues, tourism income, and every other kind of possible revenue has left the country with little if any option to deal with any further deepening of economic hardship.

This is ever more important taking into consideration that several new clusters in Bangkok and its vicinity, apparently spreading through nightlife businesses, restaurants, and schools.

The new wave comes right before the Songkran week-long holidays (13-15 April) when spending was supposed to pick up but reports are emerging that hotel bookings are being cancelled.

Prime Minister Prayut Chan-o-cha is left with little choice as his government is left with the challenge of deciding on the tradeoff between controlling the outbreak and imposing economic costs onto the economy.

His decision can be made easier as the statement from the Federation of Thai Industries (FTI)’s vice-chairman Kriengkrai Thiennukul who came out to say that the ongoing stimulus packages, including Rao Chana (We Win) and co-payment schemes, will not have enough power to restore the economy and increase people’s purchasing power as it is unclear whether the country can quickly bring the new outbreak under control.

The FTI warned the government against a prospect to earn or borrow more money to boost the economy. FTI expects people’s purchasing power and business confidence will remain low for a long period this time, making it more difficult to shore up the economy.

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